Top VCs Share the Secrets of Getting Funded

A panel of Silicon Valley venture capitalists explain how they determine which startups are worth their investment.

Getting introduced to VCs and nabbing early funding is notoriously easy for startups in Silicon Valley these days. Venture capital investment is trending towards dot com-era levels, creating an impression that venture dollars are hanging from the trees in ripe bunches all along Sand Hill Road.

Not quite. Elite venture capital firms can still be discerning about where they put their resources, both in the form of money and guidance. Speaking at the Dreamforce Startup Summit Tuesday, partners and executives from Sequoia Capital, Illuminate Ventures, DFJ and Emergence Capital talked about what makes a startup interesting and how they know if a growing company has real staying potential.

Here is some advice for startups looking for money, wisdom or both.

Business models matter.

Not all disruption is about disruptive technology, said Illuminate Ventures founder and managing partner Cindy Padnos. Disruptive business models can be equally attractive, and when the two types of disruption intersect in one startup, “that’s what gets us really excited.”

Work with portfolio companies.

Illuminate Ventures sometimes becomes familiar with startups because they offer a beta version of their product to the startups in which Padnos’s firm already invests. She said this was how her firm grew familiar with cloud-based software developer Hoopla, which is now an IV portfolio company.

… but avoid the echo chamber effect.

Selling your product or offering it exclusively to other startups might stoke quick growth in the short term, but doesn’t ensure staying potential. Traction with small, young companies that may not be spending resources well can create a false appearance of success, according to Emergence Capital founder and CEO Jason Green. He said his firm views that kind echo chamber as a red flag.

Have a clear vision.

Sequoia partner Aaref Hilaly said Sergey Brin and Larry Page didn’t have a business model when the founders approached Sequoia to seek funding for then-startup Google. Hilaly said that while not having all the answers might seem like a weakness for a startup seeking funding, lacking that particular kind of organization is not necessarily a deal-breaker. In situations where Sequoia is dealing with a potentially revolutionary product, “we look to dream with the founder,” said Hilaly. He said he tries to envision a future that includes that startup as a major player.